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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Capital Gains and Losses
Satisfied Customers: 452
Experience:  Former IRS Revenue Agent
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My mother gifted me her home 6 months before she passed. She

Customer Question

My mother gifted me her home 6 months before she passed. She did not want my sister in law to get her hands on it. I did not sign anything. I worked on it , getting it ready to sell I could not afford the carrying cost. I paid $19K in taxes and utilities for 1 1/2 years before I sold it. She paid $1 for it from my grandfather. She spent $180K for improvements but only has about half of the receits. I sold it for $240k last month. I feel it is worth almost $300K. Worried about capitol gains as I am on social security.
JA: Because real estate law varies from place to place, can you tell me what state this is in?
Customer: Pennsylvania
JA: Has anything been filed or reported?
Customer: yes her will has been settled by an attorney but proceeds are held in escrow
JA: Anything else you want the lawyer to know before I connect you?
Customer: Not sure Worried about capital gains I told my brother I would give him half less my expenses gift tax?
JA: It's hard to know for sure. The lawyer will figure it out.
Customer: Not sure if my mothers lawyer is good for me I did all the work and was told not to charge executors fees
Submitted: 4 months ago.
Category: Capital Gains and Losses
Expert:  Dr. Fiona Chen replied 4 months ago.

Dear Customer,

Without detailed calculation of all information, it looks like you take on the gift donor's basis of $1 plus her work of 180,000 and your work if you did not deduct taxes and utilities previously, of 190,000. If you rent out the place or you lived in the place, the calculation will be different. Be aware. Then, you should have closing cost to get the house ready for sale. Therefore, if you sell the place for 240,000, you should have sold it for a loss of (1+180,000+190,000+ closing cost) - $240,000. You probably sold it at a long-term capital loss. Please find a professional CPA to make sure all calculations are done correctly.

If you sold it for a long-term capital gain and you are on social security disability, it does not matter to your eligibility to the disability income, because disability counts only earned income, i.e., wages and/or self-employment income. If you are on regular social security disability and/or retirement income, the taxable portion of your social security could increase if your capital gain increases.

Below link is on what counts for your basis to that real estate property.

https://www.irs.gov/pub/irs-pdf/p551.pdf

You want to document what improvement your mother did. Taxpayer's oral testimony can be counted as evidence. You document now is better than later. There are also many ways to document. For example, the county assessment office could have increase the house value in the past because of the improvement done on the house. Below IRM section 4.10.7.3 states what can be considered as evidence during IRS examination. Therefore, it is a good reference for us to use on how to document her improvement on the house.

https://www.irs.gov/irm/part4/irm_04-010-007-cont01.html#d0e1772

Please feel free to follow up.

Regards,

Fiona

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP